Well it's that time of year when we look back and think about how we've done over the past 12 months - where the stock market is concerned.
How did the XJO do in 2023?
Not too badly, XJO up +8.13%. That's better than the average yearly return for the past 10 years of 6.61%. Don't forget that you can add dividends to that to bring a bigger smile to your dial.
XJO finished the year at 7591, just shy of its all time high back in August 2021 of 7633.
Better than the proverbial poke in the eye with a burnt stick.
In comparison to international exchanges, however, not great - but the Ozzie Market was carrying a lead brick in its saddle bag as the following chart indicates.
How did the XJO do compared to International Stock Markets?
The Australian XJO was way behind most of the other International markets. Nasdaq led the way, up >40%. Japan was up nearly 30%. Dow Jones and SP500 up >20%. That makes the XJO +8.13% look feeble.
But we can beat the Poms at cricket and on the Stock Market. London up just +2.54%.
Then we come to the lead brick that Australia is carryingi.e., China. Shanghai was down -3.7% and Hong Kong down a whopping -14%.
The Australian economy and, thus its stock market, is tied in large measure to the fortunes of China through its exports of Mining and Agriculture. If China weakens, our market doesn't perform like the rest of the world. But - that's the way our economy works - we dig stuff up and we grow stuff - and China wants the stuff we dig up and the stuff we grow. If demand in China falters - we suffer.
How did Australian Sectors perform in each Quarter of the Year?
Technology was the best performing Sector in the ASX, up for the year a whopping 32.35%, plus, it was positive in each of the four quarters of the year.
(Remember that Technology is the big strength of the American market, where it plays a dominant part in the economy, Nasdaq up >40%. Technology is a much smaller part of the Australian economy, where Mining and Financial Services dominate.)
Only one other sector was up every quarter, that was Telecommunications, up +12.25%. (That was a surprise to me.)
XJO was down in the third quarter - and so were most of the Sectors, e.g. Materials (XMJ), Health (XHJ), Staples (XSJ), Utilities (XUJ), Property (XPJ), Industrials (XNJ).
The quarterly results for the XJO this year accord with the well known seasonal fluctuations in the market. The best two quarters are the 1st Quarter and the 4th Quarter. Best to avoid the 3rd Quarter where the worst two months of the year historically occur, August and September. In 2023, XJO was down -1.42% for August and -3.8% in September.
Energy tended to act in a counter-cyclical manner to the XJO. 1st QTR down -5.27%, XJO up +2.25%. 2nd Qtr up +3.56%, XJO flat +0.36%. 3rd Qtr +8.05%, XJO down -2.15%. 4th Qtr down -9.2%, XJO up +7.69%.
On a weekly basis, Energy has an inverse correlation to the XJO of -0.82%. That's a very high reading. It may help in strategic placement of capital.
Stepping back from the Macro view, to the Micro view, how has the XJO done this week and for the month of December?
XJO was open for only three days this week. Wednesday +0.79%. Thursday +0.7%. Friday -0.31% Net, +1.19%
Chart for XJO
XJO is hard up against a major horizontal resistance level which was the all time high set back in Augut 2021. XJO has been up close to that level several times since and has retreated. Judging by the above chart, that is likely to happen again
MACD Histogram is showing a short-term negative divergence to the XJO. That means that momentum is weakening. Before a market can fall, momentum has to weaken.
Bands on the Dynamic Zone Stochastic have tightened up and are almost together. That usually happens before a consolidation or a fall.
RSI is very overbought at 76.21. Together with the other two indicators, that suggests we will see some sort of a pull-back.
In Saturday's post I showed that XJO is coming up to a timing date. The market tends to follow a 21-Day cycle. That doesn't mean up and down - and can mean up then consolidation.
Tuesday will represent the 42nd day since the low on 30 October, i.e., 2 x 21 days.
So everything appears to be falling into place for at least a short-term pull-back in the coming week.
SP500 in America was down -0.28% on Friday night and ASX Futures were down -0.29% on Friday night.
The three Supertrend lines for the XJO remain yellow - which means that the trend is up. On the SP500, the three Supertrend lines are mixed (one blue, two yellow) so the trend could be changing.
ASX reopens for trading tomorrow, Tuesday, 2/1/2024.
Sector Performance for the past four weeks.
XJO up 7.1% for the four weeks.
All sectors have been positive. As well, Gold Miners and Bonds have also been up.
Property (XPJ) +10.1% and Health (XHJ) +9.08% were the two best sectors. Materials (XMJ) came third with 8.82%
The two weakest sectors, relatively, were Energy (XEJ) +3.43% and Utilities (XUJ) +1.4%.
Even the dart throwers were making money this month.
(I shouldn't knock the dart throwers. There's evidence that the dart throwers can do better than expert stock pickers over a long period of time. See
here for an interesting article on random picks and the stock market.)
Australian VIX
VIX and the ASX are inversely correlated. As one goes up, the other goes down. Usually.
At the moment the VIX is going up and XJO is going up. One of these is "wrong". The normal correlation will come into play.
Given the overbought nature of the XJO and other negative indicators, I'd be betting that the big boppers pushing the VIX higher are on the money.
Safe Haven Demand. Bond/Stock Ratio - Australia
The Bond/Stock Ratio is another measure that tends to trend inversely to Stocks.
The high on this chart occurred on 20 March, 2023. That also corresponds with the low in the XJO on 20 March. The two are inversely correlated.
The Bonds/Stocks Ratio has bottomed out and is now beginning to rise - while the XJO is at close to all time highs. Again - one of these is "wrong".
The last time we saw something similar at the current level, the XJO topped out and started a long decline into the October low. (I'm not suggesting that a similar decline will now happen, it could, but it does point to a pull-back.)
When we get two unrelated measures showing the same conclusion, that's usually a very strong indicator.
% of ASX100 Stocks above Key Moving Averages.
- % of ASX Stocks above 200-Day MA. Last week, 62%. This week, 68%.
2. % of ASX100 Stocks above 50-Day MA. Last week, 82%. This week, 84%.
3. % of ASX100 Stocks above 10-Day MA. Last week 77%. This week, 81%.
In the long term, the ASX is not yet overbought (above 80%). But, in the medium and short-term, the market is very overbought with 84% of ASX100 stocks above the 50-Day MA, and 81% of ASX100 stocks above the 10-Day MA. That suggests a pull-back occurring within the longer term up-trend.
If we do get a pull-back, it could be the start of a longer-term down trend. We never know for sure - just watch what happens in the charts.
Conclusion
The current trend for the ASX200 is up. Stay with the trend until it ends.
SP500 is showing evidence that the up-trend may be ending (mixed Supertrend Lines).
There is plenty of evidence that the up trend in XJO may be coming to an end. Chart action is the final arbiter. Watch the charts to see what happens.
Good luck - and Happy New Year.
(20min delay)